Whereas President Obama was able to delay the sequestration by threatening Republicans with the tax portion of the fiscal ‘cliff,’ he no longer will enjoy that leverage.

Conservative doomsayers should chill out.

This week’s installment of a budget deal is definitely not the utter disaster that many enraged conservatives are portraying. While it might be a bitter pill, the deal actually gives conservatives some leverage moving forward, while leaving tax rates at levels that by historical standards aren’t bad.

Let’s first assess the history. One need not go back to the Carter-era top income-tax rates of 70 percent to see that the post-deal tax schedule is no catastrophe. Instead, just go back to the turn of the millennium.

In the year 2000, after six years of Republican control over both houses of Congress, vying with a relatively centrist Democratic president who had been weakened by multiple scandals and impeachment – in other words, a time when conservatives presumably had enjoyed plenty of opportunity to work their will on taxes – there was not a single significant tax rate higher than it will be when this week’s new law is implemented. (more below)

Imagine, in 2000, if you had been told the GOP would get completely routed in the elections of 2006, 2008 and 2012, and that the latter year would mark the sweeping re-election (322 electoral votes) of the most leftist, most media-sainted president in history – and that the just-re-elected president had just “won” a showdown in which he insisted on higher tax rates. Surely, then, you would be shocked to learn that every single American would emerge from the battle paying lower taxes on comparable income than they were paying in 2000. Every single one.

For every income level below the top marginal rate, the lower taxes would be substantial. Those formerly paying 31 percent would pay 28 percent. Those in 2000 paying 28 percent would pay 25. Many of those who were paying 15 percent would pay 10.

And the top rate, both in 2000 and in 2013 set at 39.6 percent, now will not kick in until a much higher income than in 2000. Back then, married couples filing jointly began paying the higher rate on income higher than $288,350. Adjusted for inflation, that would be $385,506 in today’s dollars. Yet in 2013, married couples won’t pay that higher rate until their earnings reach $450,000.

That’s a significant improvement. It shelters an extra $64,494 from the highest rate. That’s a difference greater than the median married family household income of $62,273. In other words, a couple running a mom-and-pop business can earn (through their business) an extra amount greater than the total earnings of the average married family before paying the higher rate.

Tax savings for that couple: $2,320 (not even counting their tax savings on the first $388,000 of income). That’s enough to hire a high-school kid for an 8-week (35-hour), $8-per-hour summer job, or enough to boost the economy by buying new equipment that increases productivity – or enough to pay compliance costs for all the extra, nonsensical regulations imposed on small businesses by Obama’s commissars.

Moving along: On dividends, top tax rates in 2013 will be barely half of what they were back then – 20 percent, not 39.6 percent. On death taxes, the difference is even more significant: Only $800,000 of inheritance was exempt from taxes then, compared to a substantial $5 million exemption today. (Better still, that exemption is newly indexed for inflation!) And the top rate then was 55 percent, but now will be 40 percent. Many thousands of inherited family farms could be saved from extinction by this policy improvement.

Of course, conservatives are right to be aghast at federal spending levels. But we fare no worse after the deal than before – not one bit. Sequestration of domestic discretionary spending still is scheduled to occur – but just two months later. The savings “lost” through the delay are entirely offset, though, mostly by reducing spending “caps” by a near-equal amount.

And whereas President Obama was able to delay the sequestration by threatening Republicans with the tax portion of the fiscal “cliff,” he no longer will enjoy that leverage. If Congress does nothing at all, no taxes will rise, but spending automatically will be cut by about $86 billion.

In the intervening two months, Republicans need merely pass a bill through the House removing defense spending from sequestration, putting the onus on the president to buck his own Secretary of Defense by opposing the bill. Other than that, Republicans can merely sit and wait; they win this battle on spending levels if no other bills pass.

Finally, the two intervening months give conservatives time to regroup and refurbish tactics and communications, without threat of an automatic tax hike. Those two months may be the best benefit of the whole deal.

2 thoughts on “‘Fiscal Cliff’ Fight Ended in a Draw”

Some asked what did the discussion thread have to do with Small Business Matters. Well, the only folks who are now paying any taxes in the USA are Small and Medium Sized Businesses and the Middle Class, and at the same time, Small and Medium Sized Businesses are Being Taxed and Regulated out of Business in the government’s quest to confiscate as much real property as possible just to Pay The Interest On Our Debts which are being run up by an Anti-Capitalist Federal Government Bureaucracy which has become a Despotic Empire as each government agency seeks and reaches empire status. All Empires Seek Growth in Size, Power, Prestige and Spending and all Empires Become Despotic and will fight to the death to maintain that power. Our Federal Government has so many agencies, bureaus, commissions and departments that the government itself cannot give you the exact number of them as they are growing year by year by both democrats and republicans. And, that is why we have 1.6 trillion deficits annually and are currently at over 16 trillion and growing second by second at a rate that it cannot be kept up with accurately.

Our Country is quietly being Repossessed By Our Lenders, all of which are also our Enemies, and not one single politician or high level bureaucrat that is privy to this knowledge, are not saying one word about this treasonous, corrupt and subversive act. They know this but are protecting their own political and economic interests and are in no way representing the legal citizens of the USA.
Read an article earlier today, 5 January 2913, concerning some petition being passed around urging the U.S. Treasury to Coin Trillion Dollar Coins as a way of Guaranteeing the Debt, which is beyond our ability to repay.

Comments made on the Debt Ceiling and Deficit Spending in response to some idiotic idea that somebody has come up with about coining Trillion Dollar Coins.
This is about as insane as the rest of our monetary policies in this country under this Totalitarian Bureaucratic System of governance. In actuality, the actual Real Property that is backing our elected politicians and hired bureaucrats reckless spending and borrowing about 1.6 trillion annually from our Debtors, the Communist Chinese, The Terrorist Arab Nations, The Germans, The Japanese, and the International Bank called the United States Federal Reserve, is our UNITED STATES PROPERTY which is The People’s Property. Our U.S. Parks, Our Military Bases, Our Ports, Our Interstate and U.S. Highways, Our National Forests and other Real Property. Our Country is The Collateral for these Loans That Will Never Be Repaid, and when our Enemies, AKA Our Lenders which I just named, will simply Repossess The United States, and will use Force If Necessary to do so. That is why Obama and this Congress are spending so recklessly and at the same time Destroying Our National Defense Forces while Expanding the Bureaucratic Totalitarian System that will Totally Bankrupt the Country and Collapse the Economy. When Our Lenders decide it is time, they will say, No More Loans, and then they will begin Taking Over Our Country because they Will Own It. It is as the old saying goes, “There Is No Such Thing as a Free Lunch” and another that says, “Eventually, the Rent Comes Due.” During the next four years of this Marxist Bureaucratic Rule under the Obama Regime, the Rent Will Be Due and the Takeover Begins. Wake Up America, we keep hearing that they are Stealing From our Children and Grand Children, but is worse than that, They Have Stolen the Country. We are all living on Mortgaged Property and just like when you do not pay your car payments, the Repo-Man Cometh.

Glad you posted this article and agree with your comments, Jim, 100%.
Anyone who thinks the GOP would actually USE leverage if they had it is a fool. Boner, McConnell, and their RINO band of gypsies and clowns now have a track record proving they march to Obama’s drum, not that of the American people.